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What actions can improve the cash position shown in a cash budget? How do you treat capital receipts (asset sales, share issues) in the cash budget? What is the difference between the receipts-and-payments method and the adjusted-profit method of cash forecasting? How do you incorporate seasonality into a cash budget? How do you build sensitivity/scenarios into a cash forecast? How do you model a debtors/receivables collection profile with multiple months? How do you build a 13-week cash flow forecast and why is it used? How do you reconcile the cash budget to the budgeted balance sheet? How do you incorporate foreign-currency cash flows into a cash budget? How does the cash operating cycle relate to cash budgeting?
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Budgeting & Forecasting › Cash Budgeting

What is the role of a minimum cash balance (buffer) in cash budgeting?

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Answer

A minimum cash balance is a target buffer held to cover unexpected outflows and timing errors. The cash budget is managed to keep the closing balance at or above this floor; projected dips below it trigger financing or action. Setting the buffer trades off liquidity safety against the opportunity cost of idle cash.
Real-world example The firm keeps a $20k minimum balance, arranging finance whenever the budget dips below it.

Common follow-ups: Why hold a buffer? | What is the cost of a large buffer?

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All 34 Cash Budgeting questions